Philip Morris, Universal Corp. Pen Supply Agreement - Analyst Blog
Philip Morris International Inc. PM is geared to increase its supply chain to improve its operating efficiencies. In order to get a major share of the popular Mexican tobacco leaves, its South African subsidiary — Philip Morris International Management SA ("PMIMSA") — entered into a tobacco leaf supply deal with the leading global leaf tobacco supplier Universal Corporation’s UVV subsidiary, Tabacos del Pacifico Norte S.A. ("TPN").
PMIMSA presently sources Mexican-grown leaf tobacco through a direct subsidiary of Philip Morris International subsidiary. However, once the agreement comes into effect, PMIMSA will buy processed graded tobacco leaves from TPN. The deal is scheduled to start from the upcoming 2015 crop and TPN has announced that it will increase its purchase of tobacco leaves in Mexico as part of this agreement.
The company ensures the procurement of best quality graded tobacco leaves by making direct agreements with farmers. More than 70% of Philip Morris’ total tobacco purchase comes from 10 countries, namely, Brazil, Turkey, U.S., Malawi, Indonesia, China, Argentina, Philippines, Mozambique and Tanzania.
The agreement will solidify Philip Morris’ position as a major purchaser of Mexican tobacco leaves. Mexico is well known for its sun-grown tobacco, especially in the San Andres Valley. Mexican cigars are usually made with 100% local tobacco. Mexican leaves are widely used as binders and filler in cigars. A variant of the Sumatra seed tobacco, Mexican tobacco is often used as a maduro wrapper.
Philip Morris carries a Zacks Rank #5 (Strong Sell). In order to combat macro difficulties, Philip Morris, like tobacco majors Reynolds American Inc. RAI, Lorillard Inc. LO and Altria Group Inc. MO, is putting greater focus on the growing alternative tobacco product category.
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